NEW LISTINGS? ABOUT THE SAME AS A YEAR AGO
(earlier hopes that they were finally increasing did not
materialize). Prices? Up, again (about seven percent year-over-year in Dane
County). New construction? Still not enough to satisfy overall demand.
So, here we are. Not stuck, really, as that would imply
things are bad. Far from it. While overall sales are not yet increasing
year-over-year, they’ve settled in at a brisk and healthy pace. What’s
frustrating—if that’s the right word—is that we can’t help feeling it could be
even better. Better, if we could just find enough homes to sell to satisfy our
region’s growing demand. And growing it certainly is. Steve Steinhoff, Deputy
Director of the Capital Area Regional Planning Commission, reported in a recent
talk that our region is growing at a rate of about 80,000 people every 12
years. That’s enough new people to fill Camp Randall Stadium. And it’s now well
understood that many of those new arrivals in the Greater Madison area are
Millennials—the largest age cohort in the nation’s history.
According to Zillow Group, Millennials nationwide now make
up 42 percent of all homebuyers, and 71 percent of all first-time homebuyers.
(So much for the theory that Millennials will never be home owners, a theory
we’ve never subscribed to anyway.) These Millennial buyers are looking for
homes primarily in the $200K to $350K range, which unfortunately is below the
range where builders in our market can help fill the inventory gap (a fact we’ve
discussed in a number of previous editions of the newsletter).
Where does this leave us, and what can we expect going
forward? Do we have any further insight into the causes of our low inventories?
Will we break out of the current situation any time soon? And if not, how do we
manage it?
THE GENERATION GAP
We’ve speculated, along with many others, about the root
causes of today’s housing shortages. A lack of new construction has been the
most frequently mentioned culprit. There’s no doubt it’s going to have to be a
part of the solution. But there’s another theory we’ve heard recently that
rings true to us.
Up until the Millennials came along, the Baby Boomers were
by far the largest generation in our history. They’re also the longest lived.
Most important for this discussion, Baby Boomers are also the generation
staying in their homes the longest. According to an August 8th Bloomberg
article by Prashant Gopal, “People 55 and older own 53 percent of U.S.
owner-occupied houses, the biggest share since the government started
collecting data in 1900, according to real estate website Trulia. That’s up
from 43 percent a decade ago.”
Baby Boomers, in general, are healthier and more active than
previous generations were at the same age. As a result, a growing number of
them are choosing to ‘age in place.’ In other words, Baby Boomers are not
selling their houses after retirement as quickly as previous generations. This
contributes to the housing shortage we’re experiencing all over the country,
including here.
There’s a wonderful irony in this, one that should remind
all of us to take the predictions of pundits and prognosticators with a huge
grain of salt (including those from yours truly). Back around the beginning of
the 21st Century, a number of articles forecasted an impending housing bust.
The reason? Baby Boomers, it was assumed, would begin to retire and start
putting their homes on the market, downsizing or moving to retirement homes. A
housing glut was predicted that would decimate home values.
In fact, what we have is the exact opposite. Boomers in
greater numbers are simply choosing to stay where they are, hogging the supply
of housing already built. Add in the fact that the Millennial generation is
even bigger, and now entering prime home-buying age, and we have the perfect
ingredients for a housing shortage.
It’s not just that simple, of course, and the obstacles
we’ve outlined in previous editions that discourage new construction are still
playing a role.
THE PICKY BUYER?
In our last edition, we speculated that some buyers were
withdrawing from the frenzy of the spring market, perhaps to reappear in late
summer or fall. We continue to believe this is true. Our own internal numbers
are running slightly ahead of last year for offers-to-purchase; we’ve been
ahead every month since a lackluster April. It would seem that many buyers have
taken our advice to remain in the game beyond the spring market.
As is often the case, however, we did see a bit of a lull
right after Labor Day. September seemed to get off to a very slow start, and
there was a point where we wondered if we might be writing about a declining
market to finish the year. We also started to see something we haven’t seen for
a long time: the picky buyer. We heard a number of stories about buyers who
made offers with somewhat of a take-it-or-leave-it attitude. Rather than
playing the bidding war game, they were walking away if the first offer wasn’t
accepted. We were hearing far fewer instances of multiple buyers bidding up the
price on new listings, and even heard some stories about sellers who were
surprised when their home didn’t fly off the shelf like most did in the spring.
As it turned out, it was short-lived. September ended with a
flurry, and October is off to a very solid start. As we draft this edition in
mid-October, we’re starting to hear stories of multiple offers and bidding wars
again. While it seemed there was a brief window where buyers could perhaps
exert a little more control during negotiations, the October push has, for the
moment, drawn that window closed. We remain in a very strong seller’s market,
and as long as homes remain scarce, buyers will be forced to compete.
ADVICE FOR BUYERS
If you’ve stayed active through summer and early fall,
you’ve probably found it somewhat easier to navigate the market than in spring.
You can perhaps afford to be a little pickier. But as always, don’t outsmart
yourself. It’s still a seller’s market, and most sellers don’t have to
capitulate to a lowball offer in order to sell. You can pass up some good
values overplaying your hand, and if you don’t buy this year, you’ll be back in
the spring market madness. Activity is still high for this time of year, and
competition remains brisk for good new listings. But it’s far less busy than it
will be in March. If you can find something now, the process will be much
easier.
